U.K. Banks Fight $7.1 Billion Payment-Protection Rules

The British Bankers’ Association
asked a court to prevent the U.K.’s finance regulator from
imposing rules on how consumer complaints over payment-
protection insurance should be treated.

Implementing the measures and handling complaints may cost
the banking industry as much as 4.5 billion pounds ($7.1
billion), the BBA told Judge Duncan Ouseley at a court hearing
in London today. It would also cause around 35 insurance
intermediary firms to fail, said David Pannick, a lawyer for the
association.

The BBA is seeking to prevent the Financial Services
Authority from imposing the guidelines because they are “an
unlawful means of requiring firms to implement a scheme under
which they will be liable to make compensation payments,” the
BBA said in court papers.

“The potential impact therefore of the FSA’s decision that
we are challenging is very substantial indeed,” said Pannick.
“Our concern is that we are now being held to different, more
onerous standards.”

U.K. antitrust regulators also cracked down on the product,
banning banks from selling most types of PPI at the same time
they sell the loans it insures.

PPI is used to cover payments on credit cards and mortgages
in case of illness or unemployment. Customers who bought PPI
rarely compared prices and terms, switched providers, and
usually weren’t aware they could have purchased insurance from
other companies, the U.K.’s Competition Commission has said.

The FSA estimated that in 2006, 6.5 million PPI policies
were sold each year, amounting to 5.4 billion pounds in
premiums.

‘Sensible and Fair’

“We strongly believe that the package of new complaint-
handling measures” is a “sensible and fair solution” for
consumers and the industry, the FSA said in a statement. The
agency is “vigorously contesting the BBA’s challenge.”

The FSA issued its new guidelines in August and clarified
them in November after the BBA asked for a court review. Firms
reject almost half the PPI complaints they received, and “some
reject nearly all,” the FSA said in August.

Britain’s Financial Ombudsman “has identified tens of
thousands of cases of mis-selling,” Adam Phillips, the chairman
of the U.K.’s financial-services consumer panel, said in a
statement today. “This litigation should not be an excuse for
banks to apply a blanket ban on processing claims.”

The FSA will present arguments later at the hearing, which
is scheduled to last four days.